The elimination of barriers between economies that initially triggered offshoring of core and non-core jobs to low-cost destinations has since led to the growth of flourishing outsourcing sectors in supplier jurisdictions. The outsourcing industry, now in its second stage, is both prompting and requiring the development of a new paradigm and rules of functioning that accurately reflect the emerging competitive environment.
Several factors – economic recession, changes in the kinds of work being outsourced, stipulations regarding confidentiality and an emphasis on sound business practices – are influencing change in the business strategies of outsourcing clients as well as vendors.
The recession has been the major driver of strategy building for outsourcing clients recently. The pressures of economic slowdown have compelled companies not only to cut costs, but also to retain profit margins in the quest for survival. This has led to a change in the way they perceive outsourcing opportunities in low-tariff destinations. Clients are now shopping around for a supplier that best meets their requirements in terms of optimum operational and cost benefits.
To achieve this they assess various qualities of potential vendors – enterprise credibility, competence in the specific work area, knowledge of foreign law and regulatory procedures, protocols and security procedures, availability of skilled staff, technical stability and the adoption of best practices. They are also looking to access high-quality expertise at reasonable fee levels in order to make the best use of their resources. Not surprisingly, cost and risk correlate closely: the higher the cost, the lower the risks.
Many businesses in the US and UK are reportedly planning to outsource more of their core work functions, as it is still proving to be an effective strategy for reducing costs and ensuring quality. Certain non-core activities (such as indexing and coding, database maintenance, billing and preparation of invoices, preparation of annual and quarterly reports and secretarial services) are also being sent offshore. In respect of these services, it is predicted that outsourcing to Asia is set to increase greatly, as it is beginning from a relatively low base line and bears greater mid- to long-term potential.
Offshoring of knowledge-based work functions requires examination of the traditional core competencies of the vendor together with its capacity to reliably deliver the required output. These tasks mostly entail search and analytics; research (both legal and non-legal); drafting; legal support functions; annuity work; editing and publishing work; and infringement analysis and the like. The evident importance of quality control in these areas highlights the need for judicious planning and proper due diligence when selecting a vendor and outsourcing such tasks.
Vendors, too, are tuned into the trends that are now dictating a change in the way they function. Many vendors are striving to offer more competitive pricing, higher service levels, customized work products and enhanced data security in order to maintain long-term deals. At the same time, it is also imperative for them to undertake strategic reorganization and transition planning in order to maintain a steady inflow of work. New business partnerships may be forged, enabling them to diversify their service offerings and maintain growth into new areas.
While it is essential for a vendor to nurture its mainstay service line, client demands for flexibility mean that vendors also need to offer new services, building and maintaining a broad, skill-based portfolio. This enables the vendor to offer customized services in accordance with the client’s specific needs, and also allows room to adapt to the changing parameters and scope of the outsourced work. Operational readiness to shift focus among service lines is the key determinant of sustenance for the vendor in both the short and long term.
Foreign law firms are seen to be increasingly inclined towards outsourcing due to shrinking budgets and reductions in the number of in-house staff. This indicates an opportunity for growth in the legal process outsourcing sector; and indeed, players in this field are now responding to that opportunity.
The larger vendors have a significant advantage in this scenario, given the depth of skilled staff and infrastructure at their disposal. However, smaller units can also do well if they strategize their operations to include more skilled work, arrest staff attrition and maintain optimum data security and confidentiality. Organizations will also benefit from the introduction of work flow management tools, risk management techniques and networking links with educational and certification organizations to augment the skill sets of the workforce.
As in any business, making optimum use of specialist resources and paying constant attention to quality of service will differentiate one vendor from the rest. Identifying future trends (and designing appropriate processes and systems in preparation for them), developing innovative techniques to add value to cost-efficient service offerings, and nurturing strategic partnerships that offer an added dimension of service (such as new business ideas) to clients are yet more strategic improvements that can ensure a vendor stays ahead in the competition.
Dr Sushil Kumar is the vice-president at Clairvolex Knowledge Processes, a Delhi-based legal outsourcing firm.
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